credit cards and borrowing capacity

Discussion in 'Loans & Mortgage Brokers' started by RoadRunner, 7th Feb, 2020.

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  1. RoadRunner

    RoadRunner Member

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    sydney
    I have 2 credit cards with combined max limit of $30k.

    Planning to apply for home loan in near future. I know reducing max limit improves borrowing capacity so I am going to close one card and reduce max limit on 2nd one down to $8k.

    question is: Can I apply home loan immediately after credit card changes or is there a recommended time period I have to wait before applying for home loans(so that new credit card limit is considered)?
     
  2. Morgs

    Morgs Well-Known Member Business Member

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    As long as you can evidence the change in credit limit (e.g. interim statement/internet banking summary) then most lenders will be fine with this.

    Can make a huge difference to borrowing capacity now days.
     
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  3. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    Credit card limits affect borrowing capacity on roughly a 1:5 ratio. $30k in cards reduces how much you can borrow by about $150k.

    Also cards with high limits is an easy road to debt problems. My own opinion is that total card limits should be no more than about 50% of a persons monthly net income.

    Lenders can see that you've got $30k in cards from your credit report. An account summary or the next statement will likely be required to verify the limit reduction. Request a closure letter for any cards that are being closed.
     
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  4. Lindsay_W

    Lindsay_W Well-Known Member

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    Make sure you get the closure letter for the card you're closing - that combined with interim statement showing limit reduction on the other card and you're good to go.
     
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  5. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    I prefer applying with the cards as is with a comment as to redn pre formal.

    Reductions and cancellations can take time to flow through to Credit agencies causing raised eyebrows at app time............it shouldnt matter, but it does

    ta
    rolf
     
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  6. Redom

    Redom Finance Strategist Business Member

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    Depending on customer preferences, can do this during submission/post conditional approval with some lenders too. I.e. can get your approval, subject to limit reduction or cancellation letters.
    The impact on borrowing power has become a bit larger with assessment rate cuts & credit card expense increases over recent years. Its 5+ per $1 limit now on OO borrowing power calcs, and more for INV borrowing calcs (extrapolated rental yield).